Our hypothetical market, summarized in the table below, includes five properties of 50,000 square feet each and an average occupancy of 88 percent. This means there’s a supply of 250,000 square feet in the market and an actual demand of 220,000 square feet. A new developer decides to build an 85,000-square-foot facility. Supply is now up to 335,000 square feet, but demand is still at 220,000 square feet, bringing the market occupancy down to 65.7 percent. The new developer didn’t bring any new tenants to the market.
Now, if we have indeed hit equilibrium in this market and demand is no longer “exponential,” we can assume demand will just grow with the population. The U.S. population growth rate is 0.71 percent per year, according to Worldbank.org. As you can imagine, we have a fairly serious problem on our hands, as this market will take years to achieve the 88 percent occupancy it once enjoyed.
It’s clear the development train is back and rolling down the tracks, but to protect your investment and the integrity of the industry, we must take the necessary steps to generate high-quality, reliable information, allowing and encouraging better building decisions. I would encourage independent owners to participate in the following:
- Resolve to help by agreeing to provide information on your project to an independent industry-sanctioned collector of information who can tabulate the data without giving away your secrets.
- Vigorously encourage your state association as well as the national association to create an effective plan to develop this information and be willing to participate.
- Conduct an independent survey of your local submarket, one each operator can share. Make sure your local planning department gets a copy and that’s updated regularly.
- Potential developers must get a real and critical feasibility study, including a detailed supply-and-demand analysis. It’s an empirical process and not one that can be done by the “smell” test.
If, indeed, the tipping point has been reached in an area or market, owners in those markets are in for some more extraordinary times. We can only hope that current owners and potential developers have learned lessons from the last development boom and will approach their decisions in an educated and cautious way. If you have any questions or doubts about how your market is poised to absorb potential development, it may be time to review your building plans and holding decisions.
Ben Vestal is president of the Argus Self Storage Sales Network, a national network of real estate brokers who specialize in self-storage. Argus provides brokerage, consulting and marketing services to self-storage buyers and sellers and operates SelfStorage.com, a marketing medium and information resource for facility owners. For more information, call 800.55.STORE; e-mail firstname.lastname@example.org; visit www.argus-selfstorage.com .